Dual UseHawaii’s Innovation Industry

February 26, 2007 Joint Information Briefing

Economic Development & Business Concerns

Rep. Kyle T. Yamashita, ChairRep. Glenn Wakai, Vice-Chair

Rep. Lyla B. BergRep. Tom Brower

Rep. Jerry L. ChangRep. Faye P. HanohanoRep. Robert N. Herkes

Rep. Joey ManahanRep. Clift Tsuji

Rep. Ryan I. YamaneRep. Corinne W.L. Ching

Rep. Barbara C. Marumoto

Economic Development & Taxation

Senator Carol Fukunaga, ChairSenator Will Espero, Vice-Chair

Senator J. Kalani EnglishSenator David Y. IgeSenator Sam Slom

Panelists Jennifer Goto-Sabas, Chief of Staff, Senator Daniel K. Inouye Jeanne Unemori-Skog, President & CEO, Maui Economic

Development Board Tom Cooper, Chair, Kauai Economic Development Board Jan Sullivan, COO, Oceanit Keith Matsumoto, Technical Director, HTDV Ed Young, Program Manager HTDV, Enterprise Honolulu Dr. Pat Sullivan, Founder & CEO, Hoana Medical Larry Lieberman, Communications Director, Referentia Systems Monte Littlefield, Founder & CEO, Pipeline Communications Dr. Rob Yonover, Founder & CEO, See Rescue Technologies Tareq Hoque, Founder & CEO, Concentris Systems Ian Kitajima, Dual Use Network

Agenda

Introductions What's Dual Use? Why should you care about Dual Use? What’s needed to create an innovation

economy? What’s missing? Q&A

What’s Dual Use? Dual Use – Refers to

technology which has more than one use. Hawaii’s dual use companies have used Federal grant funding to develop state-of-the-art technologies.

Dual Use is Hawaii’s Innovation Industry

Innovation industries are driven by ideas, people, Capital, & companies

Ian

PEOPLE

CAPITAL

IDEAS

COMPANIES

Why Should You Care?

$4B in the last 10 years in support to Hawaii’s economy

Fast growing segment of tech 739% growth in contracts 73% growth in grants

Rank 24th in SBIR grant funding, from last, with minimum State $s

Over 100 companies and growing Average salary $54K vs. $42K

median income

Ian

Sources: HIPA 2005 Policy Review; University of Hawaii OTTED, U.S. Department of Commerce, Bureau of Economic Analysis; U.S. Department of Commerce, Census Bureau; National Science Foundation/Science Resources Study Division; U.S. Bureau of Labor Statistics; Milken Institute; National Venture Capital Association; U.S. Patent & Trademark Of.ce; U.S. Of.ce of Management & Budget; U.S. Small Business Administration.

Ingredients for an Innovation Economy

PEOPLE

CAPITAL

IDEAS

COMPANIES

Jennifer

Federal Investment in Hawaii’s Ideas

$323.5M63 RDT&E Projects

in 2005

Source: Enterprise Honolulu Defense & Dual Use Strategic Plan

Jennifer

Federal Funding from HTDV in IdeasHawaii Technology Development Venture

3 years

45 projects

$13M

Keith/Ed

Ideas to CommercializationCapital

Requirements

Technological Risk

Product Development

Hawaii Technology Development Venture

State Tech Grants

SBIR II / STTR

Angels-Act215

Venture Capital

Commercialization

Institutional Investors-ERS

Oahu Technology &Innovation Center

KEDB & MEDB

State Innovation Fund

Self Funds

Angels-Act215

Incubation

SBIR I

HTDC Incubators

MIC & MRTC

Government Support

Private SectorSupport

Ed/Keith

Valley of Death

Ingredients for an Innovation Economy

PEOPLE

CAPITAL

IDEAS

COMPANIES

Jeanne

People – Workforce Development

Maui Economic Development Board

Kauai Economic Development Board

Hawaii Economic Development Board

Enterprise Honolulu

Jeanne/Tom

Ingredients for an Innovation Economy

PEOPLE

CAPITAL

IDEAS

COMPANIES

Patrick

What’s Missing? Turning ideas Into Products and Companies

IDEASvia Federal Funding

PRODUCTS>SB1688<

Valley of Death

COMPANIESvia Act 215

Venture Capital

Patrick

Ingredients for an Innovation Economy

PEOPLE

CAPITAL

IDEAS

COMPANIES

Ian

Company StoriesEstablished

Referentia Systems Oceanit See Rescue

Startups Pipeline

Communication & Technology

Concentris Systems Hoana Medical

Supported Concepts

Matching grants 3rd Party Validation. Projects are vetted Leverages federal $$$s SB1688/HB1666 (Technology Grants)

Incentives like Act 215 that allows direct investments by investors into companies (bypass Venture Capital gatekeepers), and transparency for the public Allows companies and investors to deal direct. No

middlemen. No single person or organization should control the investment flow. No politics.

SB898: Annual DoTax report on QHTBs and effectiveness of tax credits.

Keep Act 215 alive, and intact!

Ian

Data Slides

Example of Defense / Dual Use Co’s

Kauai: Trex Enterprises Corporation Oceanit SAIC Advance Fusion

Maui: Ambient Micro Trex Enterprises Corporation Akimeka, LLC Lockheed Martin SAIC Peletex, Inc.

Big Island: Kona Labs Hawaii Oceanic Technologies Carpin-Force Microelectronics

Oahu: Pipeline Communications BAE Systems SAIC Oceanit Referentia Systems Pacific Marine/Navatek Trex Omega Oceantronics Williams Aerospace See Rescue Technologies Cellular Bioengineering 21st Century Software Pukoa Progeny Applied Marine

Federal Investment in Hawaii’s Ideas

$4BRDT&E* 10 yrs

*Research, Development, Test & Evaluation

Source: Enterprise Honolulu Defense & Dual Use Strategic Plan

Defense/Dual Use in Hawaii

ð49th75 / yrPatent Activity

ð47th1?Businesses created from UH R&D (2000-2002)

➶24th$3.5M / yrSBIR grant funding

➶15th65 / yrScientists & Engineers % of WF

➶~ 80+No. of Defense D/U Companies

TrendRank2003

Sources: HIPA 2005 Policy Review; University of Hawaii OTTED, U.S. Department of Commerce, Bureau of Economic Analysis; U.S. Department of Commerce, Census Bureau; National Science Foundation/Science Resources Study Division; U.S. Bureau of Labor Statistics; Milken Institute; National Venture Capital Association; U.S. Patent & Trademark Of.ce; U.S. Of.ce of Management & Budget; U.S. Small Business Administration.

QHTB salaries ($112,683,520)327% more than credits claimed during last 4 years

(p. 30, Table 2)

QHTB expenditures ($263,286,379)764% more than credits claimed during last 4 years

(p. 30, Table 2)

QHTB gross revenue generated ($51,625,758, ’03 only)149% more than credits claimed in 2003 (p. 31,

Table 4)

Effects of Act 215 (’02, ’03)

Job Creation of Act 215

$44K1 vs. $83K2

investment creates 1 innovation job in Hawaii compared to Silicon Valley

1 $60.32M credits claimed from 2000-’03 divided by 1,378 high tech jobs in existence at the end of 2003. Figures less performing arts

investment & jobs. 2 $60.5B in venture capital invested from 2000-’03 in Silicon Valley

divided by 725,400 tech jobs in existence at the end of 2003. Source: PWC Moneytree Report

But Hawaii Startups Under-funded

$900K1 vs. $12M2

investment per startup in Hawaii compared to Silicon Valley

1 $60.32M credits claimed from 2000-’03 divided by 67 QHTBs in existence at the end of 2003. Figures less performing arts

investment & jobs. 2 $60.5B in venture capital invested from 2000-’03 in Silicon Valley

divided by 4884 tech startups during the same time period. Source: PWC Moneytree Report

2005 Venture Investment Per Deal

$0.9M$6.6M$7.35M$5.4M$6.6M$10M

HI ‘03IrelandGermanyUKIsraelU.S.

How Act 215 Auto-Corrects

If I move my QHTB out of state, can I still claim the R&D tax credit, and can my investors still claim the investment tax credit? Answer is NO to both questions. The majority of the R&D must

be performed in Hawaii Can I can avoid spending my investors’ investment, and my

investors can still claim their investment tax credit? NO…the company will lose its QHTB status, and thus investors

will lose their investment tax credit, and be subject to recapture I heard there is no risk to investors when they are getting a 100%

tax credit? NO….because an investor does NOT get his entire investment

tax credit in the first year – the credit is spread over five years, during which the company could go bankrupt, and thus the investor would lose the credits for the remain years.